This is an article from our regular real estate columnist Rachelle.
Negotiation is an important skill to develop as a landlord. Using the principles of negotiation and planning how to deal with difficult situations will save you a lot of money and keep you out of the Landlord & Tenant Board. It may salvage the tenancy and will save you turnover, vacancy and advertising expenses.
I highly recommend prompt legal action while negotiating. The legal paperwork must be started ASAP simply because it is a long drawn out process. You both negotiate and commence the process of eviction simultaneously.
Species of Distressed Tenants
There are four kinds of non-paying tenants. You should try to find out what kind of tenant you are dealing with so that you can take the proper precautions. Once your tenant has revealed their nature, your path becomes clear.
1 – Professional Tenants (AKA Deadbeats)
These are people who will never pay, have no intention of paying you and will drag out the Board proceedings so they can enjoy a free life. They may tell you that they have been at the Landlord & Tenant Board before. Some even gloat.
Solution – If you have no experience with the Landlord & Tenant Board, immediately hire someone who is very competent. Early in my career I met one of these professional tenants and it took 9 months and a visit to the Supreme Court of Ontario before she was evicted.
2 – Extreme Late Payers
I have had several tenants that never paid rent willingly and voided every Tribunal Order by paying after we went through the entire process. These characters are extremely irritating.
Solution – I once went through the eviction process with one tenant like this four times in one year. She never paid rent to our office ever. Fortunately these tenants are not legal experts. Just keep evicting them and after the lease is up get rid of them using a continual late payment form.
3 – Tenant Activists
I’d rather have a root canal then deal with this type of tenant. They look for every excuse not to pay you, tell you that you are a slumlord and are abusive. They complain about everything and withhold rent for the slimmest of excuses. They prey on landlords who don’t keep their properties in good condition. If you ever needed a reason to keep your property in tip top condition, this tenant is it. Just this year I had a tenant like this, and it took 9 months to get rid of her. The first clue the owner had about her true nature was when she started claiming she had mice, then her proposed solution was to charge the landlord $150 for a cat to kill the mice because she didn’t want inhumane pest control. Then she claimed she had cockroaches and rats. Every single email she sent I offered to send pest control and it was refused.
Solution – Do not ever start appeasing this tenant. Document everything, stop talking to this kind of tenant and get them to write things down, email is great for this. They’ll send you all kinds of good stuff to use against them in court. This will be another long drawn out legal nightmare, with all kinds of unsubstantiated accusations, talks about their human rights and more. In person they are unpleasant and abusive and they will call you 20 times per day for the most minor issues. Hire a paralegal immediately if you are not extremely competent at the Landlord & Tenant Board.
4 – Good Tenants – Bad Circumstances
Thankfully most non-paying tenants fall into this final category. There are good tenants that just can’t pay because they have lost a job or they rented an apartment as a couple and they can’t manage on one income. Alternatively they just may be very poor and paying a huge percentage of their income to rent, I have seen people pay 80% of their income to rent. This tenant will do what they have to do and either pay the rent or move out before their last month’s rent is over if they can.
Solution – These people want to pay the rent. Encourage them to find a more affordable place, give them payment plans. These tenants can be negotiated with and generally will find a way to pay or move. They may need more time. One tenant like this I dealt with had all her bank accounts seized by Revenue Canada due to the death of her spouse a year previous. It took 8 months but she eventually paid every single red cent.
Step 1 – Clarify your goal
Decide what your goal is and stick to it. You must be clear on what you want so that you can steer in the proper direction.
One state of mind I have encountered is that some small landlords are apologetic about collecting rent. As a landlord you will often be dealing with someone below your means. You may feel guilty to collect rent. To these landlords I say “You need to keep your business healthy and you must collect your rent or you will eventually go broke, sell your property and stop providing housing for people.” Providing places for people to live is an important service. There’s nothing wrong with getting paid for a service.
Step 2 – Ask for what you want – then back it up with legal forms
Learn to state exactly what you want. Ask why they are not paying rent and then be quiet and listen. Do not make this a personal issue. They are not doing this to punish you and make your life hard. Giving them a guilt trip is not going to accomplish your goal of collecting your money.
When I worked in a building I used to hand-deliver all the non-payment of rent forms. I delivered them when most people were home. By delivering the forms myself and talking to people I was able to find out if there were issues and encourage people to pay on time.
Step 3 – Create a bond
I try to create a bond with people. I remember what it was like to genuinely have no money and be unable to meet my obligations. In cases of job loss and separation people are already struggling. The people I paid back first when I did get back on my feet weren’t the nasty people. So think about what it was like when you couldn’t meet your obligations and be kind. Then hand them the proper legal form for non-payment of rent. You still need to protect yourself.
Step 4 – Remember Win – Win
I always ask what the non-paying tenants plan is. Many times if they can no longer afford the place they will move. You would be the world’s greatest idiot if you chose this time to tell them they have a lease and they can’t move. If they cannot pay you the rent, you want them to move! If things are amicable they will even let you show the place to new potential tenants.
I also allow people to pay part payments. I allow them to split up their rent payments and pay part rent each pay period. The important thing here is to create a system that does not involve you going to the property every week to pick up $200. I love email money transfer for this reason. As soon as people’s pays get deposited they can pay me and I don’t have to chase them.
Benefits of Learning to Negotiate
Dealing with tenants and people in general can be very difficult and psychologically demanding. You may be dealing with people with all types of very serious issues. Effective negotiation is the key to saving your sanity and minimizing your losses. Practice this skill and reap the benefits.
P.S. Most tenants range from good to great. About 90% will never cause you any problems; don’t let the bad ones scar you.
About the Author: Rachelle specializes in renting property on behalf of landlords. She also works with investors to find good investments in Toronto and surrounding areas. Her passion is bringing multi res properties back from the brink and maximizing profitability.If you would like to read more articles like this, you can sign up for my free weekly money tips newsletter below (we will never spam you).